Real Estate Articles » Wholesaling

The Basics Of Wholesaling

By: James Hiddle
Submitted: 01:54AM on Tuesday 11 August 2009

First and foremost I'm not anti education -- in fact it's important to have some sort of education. If you did everything by trial and error all the time not only will it take too long but you set up yourself for huge mistakes that will cost you big time.

Now that being said, education is one thing but sometimes you don't need to spend a whole lot of money on courses and whatnot. I've seen too many fork over tons of money to rip off scam seminars, infomercial garbage and bootcamps that are nothing but high priced sales pitches, that will bleed you dry and leave you with no education and an empty wallet.

I'm here to tell you there are ways to learn without spending all that dough on worthless info. One way is to stay here at the University Of BiggerPockets. This website alone has enough education material to keep you busy for weeks and maybe months. Sure it's information overload but hey, I'd rather have information overload than lack of info all together.

Now onto the subject at hand and that is Wholesaling. Wholesaling is probably one of the easiest niches of real estate investing (even though you aren't actually investing) to learn and the least riskiest. You don't need much if any money and no credit is required which is why it attracts a lot of newbies into it.

Now I'm about to give you the basics of wholesaling. Sure there are probably more tips you can learn because I'm always learning new tips by reading some of the stuff here at BP so even though you can learn the basics you still want to learn more tips that will help you in the long run.

Here are the basic steps to wholesaling:

1. Find buyers by marketing
2. Find sellers/properties by marketing or searching offline or online
3. Negotiate with seller and get property under contract
4. Assign property to buyer
5. Get paid

Now the key to wholesaling is having the right deals under contract and having the right type of buyers for that deal. The more you increase your buyers list, the more different types of deals you need to find. For example one of your buyers might be ok with 70% of the ARV, while some might want less. You have to know what your buyers like and want in order to find them want they want so both of you can get paid.

How do you determine what a good deal is? You do what we call the MAO formula which is:

70%(or less)of the ARV-Repairs-Your assignment fee=Maximum Allowable Offer

The percentage of the ARV is dependent on the market condition. The worse the condition, the less percentage of the ARV would be factored in.

Now that you know how to evaluate a deal you need to find some buyers and sellers and here is how to find them:

How to find buyers:

1. Market on online sites like craigslist, backpage, etc. You can use a headline like "Looking for investors who buy below market value" and go from there. Also, you can look for the ads that say "We Buy Houses" -- some might be wholesalers but some are rehabbers. Just contact them and find out.

2. Drive for dollars. Go to low income neighborhoods and look for vacant properties - properties with huge yard growth, mail box stuffed with mail, newspapers stacked up like crazy -- stuff like that. Write down the address and take it to the court house to see where the tax bill is going to. Or you can try your local online court house page and see if you can do that there. Than do a direct marketing campaign to get those owners to come to you.

3. Your local REI club is also a good source of buyers. Start networking with the members there.

4. Social forums like BiggerPockets are also a good place to find buyers.

5. Local newspapers. You can either advertise yourself or check those "We Buy Houses Ads"

6. Bandit signs. I'm not a fan of these but it seems to work for some.

7. Attorneys. Believe it or not some real estate attorneys have a list of clients that they work for and those clients are investors themselves. Get really chummy with some attorneys and see if they are willing to share their client list with you.

8. Lead generating sites. You can build a lead generating site like I have in my forum signature to attract buyers.

9. Property managers. Some managers might have a nice size list of landlords that buy rental properties.

10. Contractors and sub contractors are also a good source to find buyers.

There are a few more but those are some of the basics.

How to find sellers:

1. Online ads like craigslist, backpage, etc. You can also go to fsbo sites or frbo sites to see what they offer.

2. Bird dogs. Hire a property locator to help find some deals for you, especially if you are investing out of town. You would want someone local that knows the area to help bring deals to you. You can pay them some nice change and that will motivate them to bring you more good deals.

3. Lead generating sites

4. Local newspapers both online and offline.

5. Your local REI club. Some members might have too much on their plate and might be willing to let you have the deals they can't handle.

6. Bandit signs

7. Drive around and look for "For Sale By Owner" or "For Rent" signs

And again there a few other techniques but those are some of the basics. You can probably find more tips by reading the Wholesaling forum here at BiggerPockets.com.

And that's it -- at least that's the basics. How you negotiate with sellers and how to deal with buyers is a whole different subject that I will probably cover down the road. Or you can start by reading the forums and asking questions.

I hope this helps you in your future wholesaling career. Until next time happy wholesaling.

At 01:33PM on August 12, 2009 - Eric W said...

Good article James. How do you determine whether you need to find a deal that's 70% ARV or 65% ARV? This is obviously going to vary based on the seller, your buyer (investor), etc but do you typically shoot for 70% and if you do better great or do you typically shoot for 65%? I'm in Oklahoma as well.

At 04:13PM on August 12, 2009 - James Hiddle said...

It all depends Eric on local market conditions. How good the market is around the deal. Is the market stable or is it tanked? that's the question you need to answer by researching local market conditions. When you find out the market level than you can determine the percentage you need. I usually shoot for 65-70% and less in not so good markets. If you go to places like Detroit you aren't going to get 65-70% it's going to be way way less than that.

At 09:23AM on October 28, 2009 - Susan McCormick said...

James, Good and to the point.